Sri Lanka’s Peace Dividend Perks Up Economy

by , October 13, 2010

COLOMBO – The Taj Samudra, the flagship property here of Taj Hotels India, sits on what is arguably the best location in Sri Lanka’s capital. Overlooking the Indian Ocean, it is the only five-star hotel in this city from which guests can walk out straight into the largest sea-fronted green esplanade in the country.

Yet up until recently, this and its elegant rooms failed to keep the Taj Samudra’s cash registers ringing. For the longest time, rooms at the hotel went at bargain rates just to attract guests – without much success. The reason: a long-running separatist conflict scared away tourists and investors alike, causing this island state’s economy to hemorrhage.

The war finally came to an end in May 2009, with the Sri Lankan military’s defeat of the Liberation Tigers of Tamil Eelam (LTTE). Today Taj Samudra is not only doing well, Taj Hotels is also among the many foreign investors that are taking a renewed interest in Sri Lanka.

An official of a multilateral donor based in Sri Lanka even observes that foreign investments have been much more pronounced in the Colombo stock market in the last 10 months. Confirms Taj Hotels CEO Raymond Bickson: “This is a very vibrant market, we are very excited.”

So would Sri Lankan officials hearing his words. After all, just in August, the European Union (EU) formally suspended Sri Lanka’s participation in the Generalized System of Preferences (Plus) concessionary tariff scheme, which has helped give this country’s goods an extra edge in the European market.

The EU is Sri Lanka’s single largest export market, especially for apparel. In 2010, Sri Lanka’s garments exports, of which more than 50 percent went to Europe, reached a total of $3.1 billion.

The export of apparels is the country’s third largest source of foreign revenues, after workers’ remittances and tourism. Indications are the suspension has already affected Sri Lanka’s export growth, which slowed down in July – the first time in four months. Apparently, this was because of an 11 percent decline in apparel exports.

Worrisome too is the news that Bangladesh’s apparel exports were performing better than expected because some of Sri Lanka’s customers were shifting to sourcing there instead.

Sri Lanka’s suspension from the GSP Plus was actually already delayed by six months, after the EU was persuaded to wait for Sri Lanka to present “tangible and sustainable progress” of its compliance with three human rights conventions. When it became evident that Colombo was not budging, EU announced in February that it was going ahead with the suspension of the country’s trade privileges.

An EU investigation report released in October 2009 had said that Sri Lanka had fallen short of full implementation of the International Covenant on Civil and Political Rights, the Convention Against Torture, and the Convention on the Rights of the Child.

This allegation stems largely from the human rights abuses committed by both the military and the LTTE at the close of the civil war that have yet to be investigated by the government, as well as from the reported violation of the rights of those suspected of having been LTTE sympathizers.

According to Amnesty International, some 12,000 displaced people “suspected of links with the LTTE have been arbitrarily arrested and detained incommunicado by the authorities in irregular detention facilities” since the end of the war.

The Sri Lankan government, however, has remained defiant in the face of international criticism of its human rights record. In response to Sri Lanka’s suspension from the GSP Plus, the government has pledged to strengthen trade ties with “friendlier” countries such as India and China.

At the very least, Indian High Commissioner in Sri Lanka Ashok Kantha reports that these days, trade relations between the two neighboring nations could not be any better.

“Sri Lanka’s exports to India have increased by 45 percent during the first seven months, and India’s exports to Sri Lanka have also increased by 41 percent,” he says. “If the current trend continues, 2010 will be an all-time high record in trade relations between the two countries.”

And of course there are the likes of Taj Hotels, which is looking to invest over $30 million in Sri Lanka, and is acquiring a new property near the Colombo international airport, among other things. Its parent company, the Tata Group, meanwhile, is negotiating to take control of the local telecommunications firm Suntel, which holds about 20 percent of this country’s total land-line market.

India’s Mahindra Group has also said that not only is it introducing new vehicle models into the Sri Lankan market, it is also planning to set up an assembly plant with a local collaborator.

India, moreover, is Sri Lanka’s second largest source of development aid, pledging $800 million in 2009 for projects in the country’s northeast. Only Japan has been able to top that assistance; Tokyo committed a total of more than $1 billion in aid in 2009.

China, too, has been major assistance provider since of late. It has pledged over $500 million for infrastructure projects, mainly in the south of the island nation.

(Inter Press Service)

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